During a recent meeting on stabilizing and normalizing the capital market, South Korean President Lee Jae-myung announced plans to shorten the settlement time for stock trades from two days to one. This initiative, while promising, is expected to require a significant preparation period due to the need for restructuring the settlement system. Currently, the two-day settlement cycle originates from the practices established in the early days of the U.S. stock market, where firms would process orders collectively. Despite the advancements in information technology that could allow for faster settlements, change has been slow because once established, international practices tend to persist for a long time.

The U.S. has recently moved to reduce its settlement cycle, which will take effect on May 28, 2024. This decision was partly prompted by the 2021 GameStop incident, where heightened trading activity led to liquidity crises among brokerages as they struggled with the collateral requirements of holding trades for two days. In an effort to address these issues and the perceived unfairness in the stock market, the U.S. Securities and Exchange Commission decided to shorten the settlement cycle.

While Korea is leading the reduction of the settlement period among Asian countries, discussions about implementing this change are still in the early stages. A working group comprising various stakeholders, including the Korea Exchange, Korea Securities Depository, financial investment associations, brokerage firms, and international investment banks, has been set up to address the necessary preparations. However, according to Choi Hoon, head of the Clearing and Settlement Division of the Korea Exchange, the reduction may not be realized within the year, pointing out that European countries plan to implement their own reductions around late 2027, illustrating the complexity and challenges involved in aligning global market practices.